Taken to the Cleaners

New economic index created at Rutgers gauges employment trends by looking at dry cleaning bills.

Story by

Daniel J. Stoll

For more than a year now, there has been a steady stream of encouraging economic news, marked by better-than-expected job gains and a drop in the unemployment rate. But are these job gains phantom or real? “With the unemployment rate falling, my students were asking why people still felt so anxious about the economy and the job market,” says Farrokh Langdana, a professor of finance and economics and the director of the executive M.B.A. program at Rutgers Business School–Newark and New Brunswick. “The unemployment rate is one of our most eagerly anticipated statistics, yet it is fraught with deficiencies and limitations.”

Langdana and his students devised a new economic index—the Rutgers Business School-Dry Cleaning Index (RBS-DCI)—to gauge whether people are working, are looking for work, or have given up. The official unemployment rate is the percentage of the civilian labor force (CLF) that is unemployed. The CLF is the over-16 population minus people not looking for work. “Discouraged workers are excluded from the CLF—and missing from the official unemployment rate,” says Langdana. In other words, five people may find a job in a given time, but another 20 may have stopped looking, yet the official unemployment rate would have dropped.

More than 2,000 Rutgers business students surveyed their dry cleaners to find out if the volume of shirts and blouses was up, down, or flat over the past year. If people were working or looking for work, the demand for dry cleaning would increase. According to the index, 50 represents no change in the volume of laundry, less than 50 means a slowdown, and more than 50 indicates growth. The RBS-DCI was 62.50, indicating that in New Jersey a macroeconomic recovery is under way.